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Though we have already commented on the absurdity of the Postandjyan-Sargsyan exchange which took place on the floor of PACE earlier this week, the event, and the ensuing scandal continues to divide Armenian society.

Many in the opposition Heritage Party, as well as various people on social networks have praised her actions as a brave challenge to President Sargsyan, while representatives of the ruling Republican Party have slammed her comments as treason, going so far as to call her a Turk or an Azeri. With member of the HHK faction in the National Assembly, Arakel Movsisian (apparently unaware that his own expression of disgust at an inappropriate comment was way more offensive on its own) said: “She went to bed with a Turk,”.

The question at hand was the following: “Have you been to a European casino lately, and — since you are known to the public as a gambler — did you lose 70 million euros ($95 million) there and who paid for your loss?” – Many defended the question as they say it unveiled the president as a target of ridicule, while Postandjyan herself commented to RFE/RL that she tried to ask as many questions as possible in 30 seconds that the Armenian people wanted to ask, but when asked about the origin of the question relating to Sargsyan’s alleged gambling debts, she admitted that it was based on rumours that everyone knew about (in other words, there is no substance).

Assuming, of course, that Postandjyan should have asked any question at all, here is a list of questions we suggest which would have been more effective to her cause, while preserving her diplomatic credibility:

“Mr President, in your speech, you mentioned that under your presidency, civil society in Armenia has become vibrant, where citizens are well aware of their rights. However, over the last month 9 peaceful civil rights activists have been viciously attacked by government-connected thugs, and, despite promises by the Police, no serious investigation has taken place. Can you comment on the development of the Human Rights situation in Armenia?”

“Mr President, you mentioned in your speech that your decision to join the Customs Union was not one forced by Moscow, but a sovereign decision on your part. Since you also mentioned that you proudly believe that you represent the voice of the Armenian people, can you comment on your decision to act unilaterally in that regard (despite constitutional restraints), without consulting the National Assembly or the Armenian People?”

“Mr President, you mentioned that over 4 years of negotiations with the European Union under the framework of the Eastern Partnership Programme, that the government of Armenia has made great strides in modernising the Armenian state to European Standards; a belief that is shared by virtually no one else. Can you please explain to the European Delegates and the Armenian people why Armenia’s fight against corruption, Transparent modernisation and economic liberalisation has been a resounding failure?”

“Mr President, most economic indicators suggest that your financial policies, as well as the grasp of the Oligarchy on the economy are taking Armenia’s already stagnant economy towards another recession, can you explain your rationale for deciding to throw away 4 years of negotiations which would have allowed us to join the World’s largest free-trade zone, and n1 economy, in order for joining the already backward Customs Union?”

“Mr President, despite the fact that you have been warned several times by our European partners that the custom rates of the Moscow-led Customs Union were not compatible with those of the European Free Trade Area, you have insisted on going on the road to Moscow, and yet you still claim that membership in both organisations is possible (despite the contrary) Can you please dispense with the vague statements, and explain to the European Deputies how you see this cooperation with two mutually exclusive organisations possible?”

(assuming she wants to go for a shocking, yet diplomatic statement) “Mr President, You mentioned, on September 21st, that Armenia’s independence is an intrinsic value, yet only two weeks before, you completed a series of actions started by your predecessor, Robert Kocharyan, to sell Armenia’s independence to the Russians. Your party claims to be based on the ideology of “Tseghakron”, what would you think reaction of the Armenian Freedom FIghter, Garegin Njdeh (the founder of the ideology who fought Russian occupation as much as Ottoman occupation) would be to your actions?”

All of these questions could have been posed in less than 30 seconds, in an eloquent, and intelligible way which would have had the same desired effect of embarrassing Sargsyan, yet with the bonus effect of showing the world that Armenia’s opposition politicians DO possess the qualities to run the country in a more effective manner. Furthermore, by asking pertinent questions related to the pressing topic at hand would demonstrate to the European Partners, that not everyone in the Armenian political community accepts the president’s decision, and that cooperation would be more desirable with the opposition.

On the relatively sunny Strasbourgian day of October 2nd, Serj Sargsyan was scheduled for a speech at the Parliamentary Assembly of the Council of Europe (PACE – an intergovernmental legislative body consisting of 45 European nations + Turkey and Azerbaijan). Although he was several minutes late, he decided to start the Azerbaijan-bashing early, barely 1:35 minutes into his speech. He went on to totally ridicule himself over the course of roughly an hour (which will be discussed below), including a particularly grilling Question-and-Answer session, where a number of confused European deputies inquired about the real state of democratisation in Armenia, as well as the actual position of the Armenian government on Sargsyan’s controversial September 3r decision to reverse three and a half years of negotiation with the European Union (for a deal which would have allowed Armenia privileged access to the world’s largest single trade-zone, in favour of joining a Moscow-led club of dictatorships with stagnant economies, including such illustrious nations as Lukashenko’s Belarus (affectionately known as ‘Europe’s Last Dictatorship’), President Nazerbayev’s Kazakhstan and of course, Putin’s Russia).

During his 60 minutes of fame, apart from unveiling his new “We admit that there are some problems to deal with, but we are still doing a good job” strategy of self-delusion, the President went on to make a number of incoherent, vague often contradictory statements, a historical revisionisms, and gross exagerations and sometimes bordering on the realm of outright lies.

However, on the morning of October the 3rd, it wasn’t President Sargsyan’s inability to convince his interlocutors that the September 3rd decision was made alone that made headlines, nor was it the multitude of vague, and incoherent statements he made on the Karabakh conflict, and the continuation of EU-Armenia relations (despite the fact that he has been told that Armenia will no longer be offered anything at Vilnius; Instead, it was the idiotic and wholly embarassing exchange between Heritage Member of Armenian National Assembly (and representative of Armenia to PACE) Zaruhi Postandjian and the president, in which, Postandjian, ignoring all diplomatic portocol, claimed that since the president wasn’t truly elected, she will not ask him anything about that, but instead ask about his alleged gambling debts of 70 million euros to a European casino. In a boorish yet sadly typically Armenian way, Sargsyan responded that the other candidate did not have the respect of the people, or the right characteristics to be leader of the Armenians (despite the fact that the president had to resort to intimidation, ballot stuffing, bribes and carousel voting to win), that he wasn’t a gambler, and and that if he had access to such funds, he would donate it to Postandjian to help ‘cleanse her of her evil’. Yes… such an exchange actually took place in front of representatives of 47 countries… The exchange can be viewed here.

Heritage Party MP Zaruhi Postandyan (photo credit: Lragir.am)

This caused a furor in Armenia, with intense debates being waged on social networks, as well as in Parliament, where the Republican Speaker of the House, Hovik Aprahamyan announced plans to remove her from her position within Armenia’s delegation to PACE, over her ‘slanderous’ comments. Many (including herself) defended her actions, saying that she had been very brave in asking the questions that needed to be asked, but is that necessarily true?

Other than the fact that it isn’t usually correct protocol to try and shame your own country’s representative in an international arena, one can understand the idea that a political oppositionist would see the opportunity to shed light on a whole plethora of real problems in Armenia (including the lack of progress on the fight against corruption, poverty, and the slow pace of democratisation), Why she decided to use the time allocated to her to blab about an obscure gambling debts claim when there literally ANY question would have been more pertinent is anyone’s guess. It is also understandable that loyal opposition must be there to call the government on its missteps, but there is a difference between a brave opposition strategically and intelligently checking the government, and a hysterical woman (Zaruhi has built herself a reputation for hysteric outbursts as parliamentarian) throwing nebulous accusations across the floor of PACE, in front of dozens of confused delegates.

Her question provoked a number of disproportionally contemptible retorts from Republican Party government officials, who called her a traitor. Parliament Speaker Hovik Aprahamyan, apparently forgetting his government’s stated commitment to freedom of speech, claimed that “Expressing a political opinion, isn’t by nature, an absolute right”. RPA MNA Karen Avagyan, amongst others uttered: “Today Zaruhi Postanjian was more of a Turk than any Turk, more of an Azerbaijani than any Azerbaijani,” (putting aside the blatant racism).

Furthermore, this only helps to discredit the Opposition, by showing that by their rash, emotionally charged actions, their eternal obsession with unconstructive criticism and lack of alternative suggestions fails to distinguish them from the ‘corrupt, and incompetent’ government officials as a credible force.

Arguably, had she simply remained silent, it would have been quite possible that the media would have focused on any one of these following statements which Sargsyan muttered over a half hour, proving that he is personally capable of embarrassing himself without outside help:

Right off the bat: Blaming Turkey and Azerbaijan for impeding the development of a modern, prosperous nation in Armenia

Trying to paint some of Armenia’s progresses in terms of freedom of the press, speech and assembly as part of his own reforms

Claiming that the last three Armenian elections of the past year and a half (Parliamentary, Presidential and Mayoral) were a resounding success of democratic maturity, despite evidence of the countrary

Insisting that the September 3rd decision was not made with pressure from Moscow (while of course failing to explain why, if this was truly an indeginous decision, they wasted three and a half years, and resources of the European Union, only to find out at the last minute that they wanted to be part of a Customs Union that they had consistently voiced opposition to previously)

Contradicted Statement 4 by saying that they had ‘always’ warned their European partners that they are ready to move forward in negotiations as long as they do not jeopardise relations with their ‘strategic partner’ (this is confusing because there was never any evidence that Armenia’s wish to sign the DCFTA would somehow weaken the stranglehold Russia already has on Armenia; and thus, the only way the ‘strategic relationship’ would have been jeopardised by further EU accession by Armenia, would have been if the ‘partner’ in question had changed the rules of the partnership, implying direct pressure from Moscow)

In a hilarious feat of historical revisionism, Sargsyan actually claimed that Armenia had ALWAYS said that it was not yet ready to take on the country on the path of more intense democratic reform, and it was the Europeans who were pushing for it.

Praised the controversial ‘Giligia School’ (Where the ethnic Armenian pupils are forced to sing the Syrian National anthem every day and learn Syrian history, in Armenia…) for its actions in helping Syrian-Armenian students prepare themselves for their eventual return to Syria.

Yet instead of any of those topics being picked up and discussed by the media, now we are dealing with the backlash of an absurd event, which once more serves to ridicule Armenia in front of the world, in which both political figures have succeeded only in embarrassing themselves, each other, and their nation. They have only helped cement the post-September 3rd the view that Armenia is whimsical, peripheral, and an unreliable partner for international organisations.

When bloggers debate the winners and losers of that exchange, the answer is: Armenia lost…yet again.

Despite the world having witnessed our recent history, we are still asked by International mediators to be reasonable in our demands (our demands to preserve what is left of our nation)

it would be really nice if, for once, the international community, the Turks and the Azeris would care to understand the Armenian case: We are a nation of people who’s contribution to the world is quite disproportionate to our size, and yet have constantly been marginalised by larger interests, seen as disposable problems, to the point where our plight has even been refered to as “the armenian QUESTION“, as if we were a problem that the world was trying to effortlessly wash its hands of. For most of our recent history, we have been criticised as a nuisance by larger powers in the grand scheme of World Affairs, because we complained about our lands being taken from us, our people murdered, our sovereignty being violated, or culture compromised time and time again. Yet, we have constantly been asked to compromise on these things which we have held dear by the same powers who asked us to sacrifice for the greater good, to appease our aggressive neighbours, or for future compensation.

Today we live in a Republic that is one tenth the size of the state we were legally promised in 1919, which itself was only two thirds the size of the land we have historically lived in; which didn’t bother Stalin who decided to disect us even further.

Different Armenias

We do not have the luxury of having a Sprachbund stretching from Blugaria to China like our neighbours do, our closest kin have long since been assimilated into other cultures, there is no where else for us to go. We have nothing left to give, and yet we are still being told by the International community that we are being unreasonable, that we must compromise…This is not an irrational call for romantic nationalism, or irredentism, this is a very real, pragmatic issue for us. IT is an issue that intails the very survival of our nation as a relevant, independent state in the modern world. We collectively share the pain of the Azeris who suffered in the early nineties, but it was a necessary pain, Just as the pain of the Indian-born Britons who left for a land of their ancestors that they had never seen, when India received it’s independence.

It should be noted, however, that despite the fact that the Armenian nation has already lost so much, for the sake of peace, the Armenian negotiators at the Kazan conference offered a compromise that was so humiliating for the Armenian side that some of the points have still not been publicly revieled. This very reasonable proposal was turned down by Aliyev. In other words, no matter what we offer, they will still ask for more.

Should Azeri refugees be alloud to return to their homes? Absolutely. Should we allow Azeris free passage through Armenia/Artsakh, as part of a pledge to allow all of mankind the right ot freedom of movement, and dignity they deserve as fellow human beings? Definately. Should we dream of the day where we could one day trade freely with Azerbaijan and look towards eventual regional economic integration? We are more than willing…Yet, to give up even an inch of land for which we have fought and bled for? NEVER.

In his letter “The U.S. should back off its criticism of Azerbaijan’s handling of the Safarov case” (Sept. 10), Emil Israfilbek displays very concerning signs of lack of compassion and understanding for human rights, by writing that he is unable to understand why Armenians would be (rightfully) insulted by the Hungarian government’s decision to extradite convicted murderer Ramil Safarov back to his home country after having served a mere fraction of his sentence, despite international condemnation of the event. Furthermore, his letter tries to masquerade a blatant incident of racism as a call for non-interventionism.

To clarify: The Nagorno-Karabakh War was sparked by a vote in the historically Armenian region of Nagorno-Karabakh (which had been detached from Armenia, and transferred to the Azerbaijani Soviet Socialist Republic as part of a Stalin-era ploy to foster relations with Azerbaijan’s powerful ethnically related neighbor, Turkey) for reintegration into the Armenian SSR. This caused violent backlash in Baku, culminating in the Baku and Sumgait pogroms in which dozens of Armenians were systematically sought out and murdered by their Azeri neighbors in a blood-bath that lasted until the Soviet Army intervened (which the Azeris cynically now commemorate as “black Friday”).

These barbarous acts, as well as similar acts of intolerance toward other minority groups in the former Soviet republic, solidified the resolve of the ethnic-Armenian enclave of Nagorno-Karabakh to declare its independence, in line with the Soviet Constitution. This, in turn, triggered a full-fledged invasion of the territory by the Azerbaijani Army, which was defeated after a bloody four-year conflict. This humiliating defeat for Azerbaijan has been manipulated by the country’s ruling elite in order to foster blind hatred against the Armenian people in what many analysts consider to be an attempt at distraction by a kleptocratic ruling family to hold on to power.

One of he more perturbing aspects about Mr. Israfilbek’s letter is the fact that he tries to justify a particularly heinous murder by saying that condemnation of the murderer’s actions is uncalled for, because Mr. Safarov was simply retaliating for childhood war trauma. In other words, in Mr. Israfilbek’s mind, the rest of the world should not concern itself, because killing any Armenian around the world is OK. His letter describes “a deadly fight,” when in reality Mr. Safarov murdered a fellow officer at a Partnership for Peace conference in his sleep. Mr. Israfilbek treats this as something akin to a commendable act because Azerbaijan found itself on the losing side of a post-Soviet secessionist conflict, even though this man was rightfully convicted of murder.

Mr. Israfilbek conveniently omits the fact that every single ethnic Armenian family living within the NK enclave lost family members in the war as well, some through well documented war crimes, and yet, by contrast, none of them have shown similar contempt for the lives of Azeris, or glorified arbitrary murderers. Furthermore, none of the 8 million or so descendants of Armenian genocide survivors have shown a similar attitude toward Turks. Why does Mr. Israfilbek believe that the law shouldn’t apply when an Azeri kills an Armenian, and yet, in the same breath call for the U.S. Congress to condemn the Nagorno-Karabakh struggle for independence as a “genocide” of Azerbaijanis?

For once, the U.S. government policy toward the region can be qualified as commendable, since the president was able to uphold American values of human rights and justice instead of strategic interests which have been sustaining Azerbaijan’s power-elite (namely, its vast oil reserves).

This article was originally presented to the first annual convention for “Armenian Students for Liberty” September 2013

With independence, Armenia found itself inheriting a vast amount of socio-economic problems stemming from the collapse of the Soviet collectivist economy. These problems were further exasperated by the 1988 Spitak Earthquake, the war with neighbouring Azerbaijan over the Karabakh enclave as well hyperinflation of the newly introduced Dram. These alarming conditions lead a concerned Armenian Diaspora to pool its collective economic strength together in order to set up a series of badly-needed emergency funds. This was the birth of the Diaspora-sponsored charity campaign; exemplified by organisations like the “Hayastan” All-Armenia Fund.

The purpose of this paper is to demonstrate how the now wide-spread practice of fundraising and donation-based foreign aid by the Armenian Diaspora, though initially helpful in the early years of Armenian independence, is harming healthy development more than it is helping. Furthermore, It should be argued that a much better approach at promoting financial prosperity and development by the Diaspora would be to invest politically and financially into the institutions of free-markets, and rule of law.

Since Independence, the “Hayastan” All-Armenia Fund alone has collected over a quarter of a billion dollars in direct aid to Armenian infrastructure reconstruction projects. Added to that are the billions of dollars collected by a myriad of charitable organisations, including roughly two billion USD in aid and development assistance by the American Government.

Diaspora generously gives back to to the Fatherland

Economists agree that this sort of “development” aid has been largely wasteful and ineffective in achieving the desired effect. Christopher Coyne, professor of economics at George Mason University argues that: “Those Involved in humanitarian efforts are unable to promote societal economic progress because they suffer from the “planner’s problem,” meaning they are unable to access the relevant knowledge to best allocate resources in the face of a variety of competing, feasible alternative uses.”

Negative socio-economic impact of Aid

The negative consequences of development aid include a deligitmisation of the National Government, perpetuates the sense of learned-helplessness amongst the population, and abets corruption by officials. Since the primary role of Government in Armenia is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free, yet as the same time the government budget sets aside funds for the construction and rehabilitation of state infrastructure; Diaspora-funded project only serve to remove the responsibility that elected government officials should have vis-à-vis their electorate in regards to the spending of their tax money. This, in turns, allows for irresponsible spending by both the Diaspora organizations, and the government.

The politics of Foreign Aid also has a direct negative impact on the communities they are trying to help by disrupting the organic development of civil society when dealing with issues. Thus, instead of communities forming committees to deal with problems that affect them all on a grass-roots level, they are instead encouraged to simply wait for help from the diaspora.

Foreign aid encourages corruption in Armenia. Diaspora donors act in a very peculiar way when donating to such charities. They essentially allow themselves to contribute to the tax revenues of a country of which they are not a citizen of, and with no say on how the money should be spent; which is ironically the exact same confrontation on which the United States of America was founded (“No taxation without representation”). They do not, in anyway demand accountability, or transparency from the local contractors when funding projects. This has lead to widely publicised scandals where Armenian government officials used a system of kick-backs, bribery and fraud in order to augment their income. Because most development projects usually require cooperation with the local government. This increased exposure amplifies the opportunities for fraud and corruption.

Causations of Diaspora Behaviour

The Diaspora’s Foreign Aid mentality has been shaped by the image of a far-away, desperate Armenia of the 1988 earthquake, as well as five decades of post-colonialist, and structuralist views towards the benefits of Marshal-era Aid policies. The sense of duty towards a homeland, the naiveté of donors towards the on-site partners, as well as the self-gratification when doing good generally has the effect of obscuring the real needs of the target beneficiaries. In many cases, projects can fall pray to corruption, mismanagement and failure to achieve longterm sustainability.

Solutions:

Aside from small-scale, and pinpointed projects, large-scale aid and development projects are simply obsolete. The only true path to sustainable economic development for Armenia, as well as all nations, is good governance. In their book, “Why Nations Fail” (2013) Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or the lack of it). For Acemoglu and Robinson, nations that progress socially and economically usually have states which: “Secure property rights, the law, public services, and the freedom to contract and exchange all rely on the state, the institution with the coercive capacity to impose order, prevent theft and fraud, and enforce contracts between private parties.”

Thus, the Armenian Diaspora needs to shift its focus from providing relief aid, and large-scale infrastructure development aid, to ensuring the development of healthy, transparent, and inclusive institutions. This would mean pushing for a government which secures basic individual liberties, does not obstruct the free exchange of goods, services and ideas.

This can be done in the following ways:

Diaspora aid organisations could change their focus from donations to venture capital management. They could contribute rationally to sustainable development by promoting good business practices in Armenia, and to finance the Armenian private sector in the country. Such groups could hire on-site risk management professionals who could analyse the business plans for local entrepreneurs, while helping those who’s ideas need to be further cultivated with sound business consulting.

Furthermore, in order to protect the interest of Diaspora, repatriate, as well as foreig ninvestors who could potentially breath fresh air into the the country’s business sector, against government provocation, harassment, nepotism and kickbacks. they can also engage in reverse-lobbying in Armenia. In other words, as Armenian Diaspora organisations revamp themselves as investment groups, they can threaten to withhold funds from the cash-strapped government until it submits to a number of legislative changes which would help create a link between : These would include abolishing the customs agency, reducing personal income and corporate taxes to a 15% flat tax rate, create tax-free zones in the provinces to encourage foreign direct investment, to form an independent judiciary branch, and to severely cut down the size of government.

This would protect the interest of Diaspora or repatriate, as well as foreign investors who could potentially breath fresh air into the the country’s business sector, against government provocation, harassment, nepotism and kickbacks.

Such emphasis on laissez-faire policies would allow the armenian economy to shed its soviet legacy of inefficiency, while kickstarting a vibrant and competitive economic presence on the world market. With such policies, Armenia would become a very attractive place for investors, and could find its competitive advantage, while building a niche for export products and services.

Armenia should be encouraging high-skilled, high-income repatriation

The Armenian Diaspora could also pressure the Armenian government to greatly simplify the repatriation process, especially for investors, by allowing for alternate military service, tax breaks for certain types of professionals, and so on.

For the Diaspora organisations adamant on preserving the Benevolent/development-oriented nature of their organisations, it is also possible to transform the organisation into a sort of independent (form the RoA government) development foundation, providing grants and real support to social-business start ups and so on; following a structure similar to the US-Government-funded “Enterprise Development & Market Competitiveness Project”

Conclusions

Since funding massive aid projects is an obsolete way of solving Armenia’s problems with economic stagnation, oligarchy, corruption and emigration, the main goal that the Armenian Diaspora should be more invested in implementing the right conditions for long-term, and sustainable socio-economic growth in Armenia, by lobbying for what Coyne describes as “The conditions underpinning economic freedom—protection of property rights, private means of production, and free trade in labor and goods—provide an environment free of coercion in which people can engage in the process of discovery and experimentation necessary for economic development. This process is messy and will often appear misguided to outsiders, but it is the only way to achieve society-wide development.”

4 “The Role of Government in Education,” by Milton Friedman. From Economics and the Public Interest, ed. Robert A. Solo, copyright 1955 by the Trustees of Rutgers College in New Jersey. Reprinted by permission of Rutgers University Press.

The Armenian Police Department retracted a draft law proposal banning “Propaganda” promoting non-traditional family relationships in Armenia a day after it had been proposed, citing the need to specify certain elements of the bill.

However, much like the NGO bill, the Yerevan beautification project and a host of other “brilliant”, yet far from original ideas, this one seems to be a calque from an identical bill passed in Russia recently. It is rumoured that the Armenian Police are rewriting the bill in order to specify what could be considered “non-traditional” sexual behaviour. We can expect the Armenian government to throroughly research the various sexual positions which will be considered legal and illegal.

The question thus arises, why is the government worried about its citizen’s sex lives?Are there not more important things for governments to legislate? Where does the role of government end? Today, more than ever, the quote “There’s no place for the state in the bedrooms of the nation” remains relevant for the citizens of Armenia.

Aside from the obvious consequences of a useless bill in a country where LGBT rights are often regarded as a non-issue, especially considering the many pressing issues, why would such a bill be drafted at all? what do you think? The answer, however, remains clear: Good government = less government.

This blog post was originally written at the request of the German-Armenian Journal Armenisch-Deutsche Korrespondenz, and is part of a series of previously unpublished blog posts and articles which will be pressed in the coming days…

article below…

PFA report’s cover

The findings in Policy Forum Armenia’s (FPA) February 2012 report caused quite a stir in Armenia. The document claims that the Armenian authorities have failed to implement a comprehensive policy shift in the wake of the 2008 economic crisis, and also that the country is likely to face a similar crisis in the future if appropriate action is not taken. This caused urgent concern for some, while being dismissed as alarmist by others. However, it is important to properly contextualise this report as well as the implications it puts forward. This being said, regardless of the accuracy of the report’s timeframe, the concerns highlighted by the FPA remain valid, and should immediately be addressed by the Armenian government, or lobbied for by local and international Armenian groups in order to ensure Armenia’s future prosperity and sustainability.

More recent reports by the World Bank and the International Monetary Fund (IMF) have put forward scenarios that somewhat contradict some of the bleaker predictions advocated by the FPA report. This does not mean, however, that the concerns and proposed recommendations of the report should be ignored. On the contrary, they should be taken all the more seriously, given Armenia’s already precarious geopolitical positionand the lack of space for mistakes in policy making.

Although Armenia may not necessarily be heading for a crisis as described in the FPA’s 3rd drastic currency depreciation scenario, many factors still hamper real and sustained economic growth – factors which in effect would only require willpower on the part of government authorities to solve. The solution ultimately revolves around a simple formula of a low, comprehensible and flat taxation system coupled with a sustained desire to tackle corruption at all levels, and finally, access to proper continuing education for Armenia’s citizens.

Interestingly, the report also reserves a role for the Armenian Diaspora in the pressure for, and implementation of, new and comprehensive pro-growth policies in the Republic of Armenia (RA).

Inflation and Debt Management:

Inflation and debt management are generally considered to be high priority concerns to ensure the macroeconomic stability of the country. The FPA thus rightly points out some of the dangerous flaws in the RA’s debt management policy, stating, for instance, that Armenia’s debt percentage has reached critical levels for a developing economy at 40% (p.4), while pointing out that Armenia is due to repay its foreign loans between 2013-2014 (most of which is owed to the World Bank). Such a process could potentially undermine Armenia’s foreign exchange reserves for a long time to come.

Though this is not entirely incorrect, it is well within the norms of sustainability when compared to other European states, which are running much larger debt margins. Furthermore, a recent agreement between Armenia and the World Bank intends to facilitate the repayment with minimal disturbance to Armenia’s foreign exchange reserves.

It should be noted that sustained external debt does not automatically spell disaster for an economy, but on the contrary, and somewhat paradoxically, could be seen as a sign of healthy economic growth. If creditors continue to approve loans to a country, it displays a certain trust in its economy, thus fostering a better investment climate. This is further supported by the report released by Fitch Ratings, which gave Armenia a BB- credit rating, while predicting a stable economic outlook for the country. The report states: “The rating affirmation reflects the fact that Armenia is gradually reducing its fiscal and external imbalances. The government narrowed the fiscal deficit to 2.8% of GDP in 2011 from 5% of GDP in 2010, through tax collection improvements, revenue surprises and spending restraint”. (Reuters, August 2012)

Furthermore, a recent IMF report released after a September 2012 working visit to Armenia found that Armenia’s debt and inflation management was quite sound, stating that “the programme is broadly on track, with most quantitative targets met and structural benchmarks implemented. Fiscal consolidation is moving forward, ensuring that public debt remains sustainable.” (IMF country report, Armenia October 2012) Furthermore, it praised the Central Bank of Armenia (CBA) for its close monitoring of the situation.

The IMF report also states that the banking sector remains solid and well-capitalised. However, the findings concur with the FPA report in warning that continued foreign currency lending continues to grow rapidly, exposing banks to indirect credit risks. These concerns, however, are factored into the Fund’s technical assistance programme to Armenia, which includes plans for supporting strong growth and poverty reduction, reduction of the fiscal deficit by over 6% of GDP (while trying to preserve key social expenditures), implementing reforms to improve the tax system, ensuring greater exchange rate flexibility, strengthening the financial sector, and more importantly, improving the business environment.

To sum, though the FPA does fear that Armenia’s external debt might be quite critical, it remains quite manageable, according to international financial organisations, which are closely monitoring it, and working along side the CBA to reduce it.

Corruption and Economic Growth

The FPA report is evidently correct in highlighting the negative effect of corruption for the state revenue collection system, as well as for economic growth. In recent years, the government has taken a number of steps to greatly reduce petty corruption, but have categorically failed, or proved unwilling to fight it on a large-scale.

This is highly critical because, even with a 20% corporate profit tax, as well as newer systems implemented to impede tax evasion in small and medium enterprises, tax revenue has only slightly risen, and still only constitutes some 16% of Armenia’s GDP (compared to 25% in neighbouring Georgia. This is largely due to an entrenched system of corruption in the higher echelons of power, where big businesses are intrinsically connected to people in government who often receive kickbacks in exchange for large-scale tax evasion by some of Armenia’s largest corporations. Such practices deprive the government of a large amount of funds which could be used for social or infrastructure programmes, and instead, constrains the government into taking out loans to balance the budget. The problem is further compounded by the fact that many of these government-connected oligarchs enjoy de facto monopolies on commodities imports (often while circumventing the tax system) and go so far as to use the aforementioned connections to threaten foreign investors (and as such, real sources of tax revenue) from establishing themselves in Armenia. Corruption in the government business environments pose a long-term vital threat to the survival of Armenia as a functioning state because it discourages foreign investment and repatriation from the Diaspora. Recent rumours of Republican MP Samvel Aleksanyan’s attempts to fend off french conglomerate “Carrefour”s establishment in Armenia due to fears of competition with his own chain of “City” hypermarkets paint a good picture of how such practices are negative for the country’s development.

In the last couple of years, the government, under pressure from the World Bank, has seemingly taken steps to fight corruption with some success. New regulations make it harder for business transactions to go unregistered, and the tax service has become more transparent. However some would argue that the state’s supposed commitment to fighting corruption is also being used as a way to apply selective justice to enemies of the regime, exemplified by the National Security Services (NSS)’s highly publicised investigation into alleged money laundering by prominent opposition MP Vartan Oskanian.

Role for the Diaspora:

Diaspora investors have had a number of experiences while investing in Armenia. Though many have done well, there are many horror stories now circulating in diaspora circles, causing many to think twice before investing in their home country.

There are two sides to this issue. The first obviously involves government connected personalities taking advantage of a situation where good-hearted yet somewhat naive Diaspora Armenians would often be induced into giving kick-backs and other forms of corruption, or signing legally dubious contracts only to find their assets at the mercy of corrupt judges.

On the other hand, many Diaspora investors were seemingly unaware that, though Armenia is indeed their homeland, it is still a transitional post-Soviet state, and Rule of Law is a new, and ill-understood concept. Thus, smart investors should put aside the emotional bonds of kinship and apply the same risk calculations as they would in any other developing state.

Either way, this creates a vicious circle where government-connected oligarchs receive positive stimulation from continuing the Soviet legacy leeching off of foreign grants, donations and investments, who inevitably end up biting the hand that feeds them, so to speak.

Armenia has been independent for over two decades now, and both the Armenians in Armenia and those of the Diaspora have now passed the episodes of early culture-shock and should now reevaluate their symbiotic relationship. The Armenian diaspora should still invest in Armenia, but not as naively as before, and should not be afraid to demand real change from authorities.

Furthermore, the State would learn that it is in its benefit to take real steps to facilitate and encourage foreign investments, as it offers the prospects of long term growth and wealth than sheer theft would ever account for.

Conclusions:

Though the PFA report does indeed seem to be alarmist, it does point out some glaring and easily amendable inefficiencies in Armenia’s reform programme. Though Armenia’s economic recovery is still quite fragile, It seems unlikely that Armenia would go bankrupt anytime soon, but fear of financial meltdown should not be the driving force behind comprehensive financial and socioeconomic reform.

The Diaspora does have a great role to play in Armenia’s economic recovery and further development which does not involve charity or Genocide lobbying. It involves a combination of smart investment, collective lobbying for REAL justice system reform to protect said investment, and finally, repatriation.

Repatriation is eventually the most important because it would force the local authorities to face citizens who grew up in societies where rule of law is prevalent, and individuals are taught to demand their rights. Such values which would be transmittable to the local population as well.

The government, on its hand, should learn that, though Armenia’s geopolitical situation is not ideal, facilitating investments by lowering corporate and income taxes, creating a strong banking system, aggressive democratisation and committing to free-trade agreements could only result in stronger and more viable state, which in turn would encourage repatriation of a highly skilled and wealthy workforce to the country, thus securing a future for the Armenian nation.